Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm's chief economist, is a senior fellow at Yale University's Jackson Institute of Global Affairs and a senior lecturer at Yale's School of Management. He is the author of Unbalanced: The Codependency of America and China.

Comments

Thank you Mr. Roach, for clarifying my error in appraising the root of the US economic problem. I had thought that because of the trade deficit, a net reduction in 4% of GDP, people had lost jobs and income and had to rely on foreign savings, made possible by US imports, to provide the credit to allow consumption levels to be maintained. Now it is clear that because Americans don't save enough, they import consumables. Thankfully, US trade partners are willing to provide Americans the credit they require to buy foreign produced consumables. How nice of these people. Boola, boola. Read more

This column does not measure up to Roach's own standards because it is focused on the American economy and not the international ("global") economy.

In spite of the USA's low saving rate, the global economy has an enormous and ever-growing stock of saving (wealth). Mr. Roach's USA-centric proposal would only accelerate the growth of global wealth, thereby slowing the growth of consumption and hence of output. For sure, this is a sure recipe for the disintegration of Pax Americana.

Instead of becoming the world's leading defector from Pax Americana, the USA should cojole and force current large defectors--concentrated in E Asia and N Europe--to cooperate. Concretely, this would mean a Chinese social security system or Germany's transition from a VAT to an income tax.

Impossible? If so, then globalization itself, as its governance is presently structured, is impossible. Welcome to the New Dark Ages. Read more

Steven Roach talks as though the flow of savings to the United States simply filled a void, and was not motivated by a supply of safe savings instruments underwritten by a Federal Reserve system that applies the gains from seignorage to the support of asset prices. Foreigners are simply cutting themselves in for a part of those gains by buying US securities. And that problem -- one of subsidized supply -- is a lot easier to deal with than one of excess demand. Read more

I don't suppose anyone really knows what Tumponomics will involve. However the benefit of having an Executive which can work with both houses means that, at least potentially, the US can increase the return on investment through good infrastructure spending and by capturing more of the gains of trade. Higher permanent income would tend to raise savings in a virtuous circle which also benefits lender countries.Read more

Mmm.. American consumers have been for decades been the consumers of last resort. They also live in the only country able to print internationally valid currency without apparent limit. So the game is: They consume more than they earn, and their government prints money (QE is just that). If they start saving ... who's going to consume? Read more

Peter Schaeffer gets it right. The dollars that we ship abroad because of our own companies' choice to manufacture there, and a post WWII policy decision to be the world's consumer (to promote long-term peace) have to come back (like petrodollars in the 70s) either as foreign direct investment or asset purchases. Better for us that they buy Treasuries at top prices than buy US industries and send the profits home. But they won't be satisfied with Treasury purchases forever. They want assets with higher yields. We can manufacture at home, and pay people here enough to save at the margins, but then we as a country have to be willing to pay more for domestically manufactured goods. Are we willing to do that? I would hope that policymakers seek a sustainable compromise position that doesn't alienate trading partners or maintain a huge trade deficit. On a related front, spending more on new infrastructure, like modern trains, won't do much good if we buy the cars and locomotives from abroad. Years ago, our heavy earth-moving equipment came from Galion and Bucyrus, two Ohio towns you never heard of. Now it's made by Volvo and Komatsu. Read more

Below you will a quote that explains why a dramatic change in U.S. economic policy is needed and why the status quo is failing.

“There can be no mistaking the intensity of the angst bearing down on the American workforce. I suspect something else may be at work here. As I have noted previously, at present, there is an extraordinary disparity between the capital and labor shares of US national income (see my 8 January dispatch, “The Power Shift”). The profits share currently stands at a 50-year high of 12.4%, whereas the labor compensation is just 56.3% — back to levels last seen on a sustained basis in the late 1960s. It turns out that’s a very different juxtaposition of economic power relative to that which prevailed during the Japan bashing of the late 1980s. Back then, the shares of both capital and labor were under pressure: The profits share of about 7% was well below the 10% reading hit a decade earlier whereas the labor compensation share of about 58% was down markedly from the 60% reading hit in the early 1980s.In my view, this underscores a key element of tension in America’s current backlash against globalization that was not evident in the late 1980s. Today, the pressures are being borne disproportionately by labor, whereas 20 years ago, capital and labor were in the struggle together. In the late 1980s, many of the once proud icons of Corporate America were fighting for competitive survival at the same time that US workers were feeling the heat of global competition. The pain was, in effect, balanced. Today, US companies, as seen through the lens of corporate profitability, are thriving as never before while the American workforce is increasingly isolated in its competitive squeeze. In essence, capital and labor are working very much at cross purposes in the current climate, whereas back in the late 1980s they were both in the same boat.” Read more

Mr. Roach's analysis is basically inverted. America's dismal saving rate is a consequence, not a cause of the trade deficit. A country, with a huge trade deficit must borrow massively from abroad or its economy will implode. For years, the private sector borrowed massively (the housing bubble) to offset the trade deficit. When the housing bubble, burst borrowing shifted (massively) to the public sector.

It is an accounting (national accounting) identity that that capital account must be exactly equal to (with an opposite sign) as the current account. America has huge CA deficits because of the trade deficit. Some sector (public or private) must borrow massively to offset the trade deficit.

Under Bush the linkage was quite explicit. Bush's trade policies crippled the productive core of the U.S. economy (Bush never saw a job he didn't want to outsource/offshore). Since Bush's trade policies were a very (very) large negative for the U.S. economy, he conjured up (with help) the housing bubble to offset the economic weakness inherent in the trade deficit. The results were catastrophic.

Econ 101 (actually 303) says that the U.S. can not reduce its foreign borrowing unless the U.S. reduces its CA deficit. The economic policies of Bush/Obama/Hillary guaranteed an ever larger U.S. CA deficit. With Trump, a change for the better is at least possible. Trump has already killed the TPP. With enough changes, the U.S. might reduce or eliminate the trade deficit, which would make possible a corresponding reduction in foreign borrowing. Read more

A multilateral solution is to tax the financing of trade deficits. Money is fungible and it is easy to write an attribution equation for who should pay. I don't think Trump will allow US trade deficits to rise. It should be a slow-motion adjustment towards balanced trade. Read more

Missing from the author's "analysis" is any evidence that there is a cause and effect relationship between what the author describes as the "so-called net national saving rate" and national growth. Read more

'growth via deficit spending' As opposed to growth by what? Growth by exports? Growth by company profits increased by real wage cuts?Growth from the housing market? The US has been waiting for growth from these sources for a while now and it has been slow at best.

If the infrastructure bill was done in a responsible fashion with an infrastructure bond then foreigners could buy the bond with their savings. It is the nature of the deficit spending that is the issue, whether it funds productive assets producing future income streams or whether it funds consumption spending that will yield no future income stream.

It is quite valid for a country to insist on it's own citizens having a certain share of it's own infrastructure dollar especially when surplus countries like Germany, China, Korea etc are not stepping up.

Who is being protectionist - the country that takes another country's aggregate demand while building an even bigger export surplus for itself or a country that is providing aggregate demand worldwide and wants to keep a bit for itself? Read more

When savings accounts pay peanuts for interest, and that interest is subject to income taxation, it hardly seems worthwhile. Higher interest rates and tax exemption for interest income might spur saving. Read more

Americans saving problem is more to do with industry leaving than with the nature of Americans. Post war America did save a lot. If Trump manages to bring industry back home then savings will increase from salaries paid to American workers and from retained earnings and taxes on profits. Seems simple enough to me in theory. The hard part is to bring industry back without destabalsing everything. Read more

The rate of personal saving in the US started trending downward in the mid-1970s until about 2005, and it has been trending upward since then with the exception of a drop in 2013.

The fact that the personal saving rate has been trending upward for the past decade is, in my view, pretty strong evidence that the personal saving rate is not closely tied to the number of manufacturing jobs in the US but instead is impacted by a number of variables. Read more

Whatever way is chosen or developing, what could help out of this dilemma is a rule of thumb, that addresses an underlying, more abstract dilemma:"Subgroup liberation demands fairness and compensation."There is some theory surrounding this in my accounts' biography.

On me posting similar again and again: It may seem to be spam, but to me it seems related and relevant. Read more

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